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The payback period may be more appropriate to use for companies experiencing capital rationing....

Question:

The payback period may be more appropriate to use for companies experiencing capital rationing.

True

False

Payback Period

When a company would like to know the duration or the number of years in which would like to recoup its initial investment from a project, it uses a capital budgeting technique called the payback period. To calculate the payback period. the initial investment to be subtracted from the annual cash inflows and once the project has a positive cash flow that is higher than the initial investment, the payback period can be determined.

Answer and Explanation:

The correct answer is True

When a company is experiencing capital rationing, the company is restricting the number of investments it can outpour and will only choose the profitable investments. The payback period can help in choosing a profitable investment.


Learn more about this topic:

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How to Calculate Payback Period: Method & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 24
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